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“Start Tank” Incubators Prove a Benefit to Big Business, Too

Written by Amanda Maher

As cities clamor to support the hottest startup companies, many governmental agencies and nonprofit ventures are springing up with new incubators and coworking locations to encourage entrepreneurship. But what role does the private sector have in supporting the startup community? In many cases, the private sector steps up with pro bono legal, business and marketing support for new ventures. But now, private sectors are beginning to launch their own incubators.

In Boston, Chennai (India), and as of last month, London, PayPal has established “Start Tanks”, incubator space for startups to work alongside PayPal staffers. Entrepreneurs are provided with 6-months of rent free space (with the option to extend for another 6-month cycle), and PayPal coaches the startup companies to work through their immediate and strategic needs.

As long as the company does not directly compete with PayPal, a leader in the payments industry, they can qualify for the Start Tank. Companies are selected based upon their team (experience, fit, personalities) and business potential (opportunity, competition, risk/stage, etc.). PayPal also looks for companies that are synergistic with PayPal and eBay’s visions for connected commerce. It’s a win-win: as these firms grow, so do the opportunities for PayPal.

While PayPal is not actively looking to invest in or acquire the startup companies directly, it is hopeful that the fast-growing companies they choose to participate in Start Tank will become loyal customers. “Hopefully, they’ll be using PayPal products and when they get to that $100 million company, we’ll be powering their payments,” said John Lunn, PayPal’s Senior Director of Developer and Start-Up Relations. “For us, that is the benefit we’re looking for here.”

Current Start Tank companies include Canary, an online marketplace that donates 30% of their profits to local charities; Supplet, a healthy pregnancy marketplace that offers monthly gift box services for pregnant women and new moms; and Bare Tree Media, which creates branded digital entertainment solutions to drive consumer engagement and commerce through mobile and online platforms.

New ICIC research finds that some cities are developing incubator space to target companies in a growing cluster. Start Tank is no different. The Boston Start Tank, for instance, has a concentration in ad-tech, e-commerce and consumer-facing companies,which is reflective of Boston’s booming tech and innovation economy, more broadly.

Around the country, we’re seeing other private sector companies follow suit. In Detroit, JPMorgan Chase has committed $100 million to support small businesses, which includes support for TechTown Detroit, their city’s most established business accelerator. Shell launched GameChanger, an offshoot of its R&D division, nearly 20 years ago. More than 1,500 innovators have moved through this incubator, with more than 100 turning their ideas into reality. Nike, meanwhile, has launched a 90-day Nike+ Accelerator with the goal of growing its Nike+ ecosystem.

At each of these incubators, entrepreneurs are able to take advantage of the parent company’s resources to scale their businesses, such as new technology or regulatory/scientific expertise that would otherwise be difficult for an independent startup to afford.

In an era of reduced public revenue, companies like PayPal are showing how private sector investment can pave the way for job creation and economic growth in cities around the globe.